Liontrust UK Growth Fund

• Moonpig and Peason rally on upbeat trading updates.
• Amid an environment of macroeconomic uncertainty, the Fund’s engineering groups suffer poor returns in October. 
• Keywords Studios exits portfolio on completion of its acquisition.

The Liontrust UK Growth Fund returned 1.8%* in November. The FTSE All-Share Index comparator benchmark returned 1.2% and the average return in the IA UK All Companies sector, also a comparator benchmark, was 0.9%.

External influences played a significant role in shaping market dynamics over the month. Global volatility was sparked by the re-election of U.S. President Donald Trump, who announced new tariffs on imports from key trade partners, including a 25% tax on goods from Mexico and Canada and a 10% tariff on Chinese products.

UK equity markets experienced a largely positive month, with the FTSE 100 index recording a 2.6% gain, the mid-cap FTSE250 Index rising 2.1% and the FTSE All Share returning 2.5%. Among the smaller capitalisation indices however, the FTSE AIM All-Share Index dropped 0.4%, and the FTSE Small Cap (ex-investment companies) Index fell 0.6%.

The financials sector continued to buoy benchmark FTSE All Share index returns amid expectations of higher-for-longer interest rates globally. The banks subsector – where the Fund has zero exposure, due to its investment process – has been a standout performer over the year to date and continued to extend gains during November.

Despite this sectoral headwind for the Fund, the portfolio delivered outperformance of the benchmark in November due to strong returns from a number of core holdings. Sage Group (+35%) was the Fund’s top performer after the software company announced a resilient set of full year results, accompanied by a £400 million share buyback. Sage delivered double digit growth in underlying annualised recurring revenue (ARR), along with operating margin accretion and strong cash generation.  The company expects organic revenue growth of 9% or more in fiscal 2025, along with continued margin improvement.

Shares in Indivior (+29%), the specialist pharmaceutical business, have fallen heavily over the year to date due to adverse market dynamics impacting take-up of Sublocade, a long-acting injectable treatment for opioid addiction which is its key drug, as well as heightened investor concerns over the competitive threat from rival treatment Brixadi. However, the shares staged a partial bounce back in November after acknowledging criticism by activist stakeholder Oaktree Capital Management for "lack of focus" and poor defence of Sublocade versus the competing product. Indivior commented that it had engaged with Oaktree and welcomed proposals to enhance shareholder value while reaffirming its commitment to its strategic goals.

Inter-dealer broker TP ICAP (+17%) announced a 10% rise in third-quarter revenue to a record £557 million for the three months ending 30th September, up from £512 million a year earlier. This growth was fuelled by strong performances in its Global Broking and Liquidnet segments. The Global Broking division saw a 9% increase in revenue, with its largest and most profitable franchise, Rates, achieving 14% growth amid recent interest rate volatility. The previously-announced strategic review of options to realise value from the group’s Parameta data and analytics division – which has been a significant catalyst for the shares over the year to date – continues to progress. Options on the table include a potential listing of the division in the United States, with TP ICAP retaining a majority stake.

Smiths Group (+16%) delivered robust performance, exceeding expectations with a strong start to its new financial year. The company raised its annual outlook and increased its share buyback programme from £100 million to £150 million. Growth was well-distributed across divisions. Jone Crane reported a "high single-digit" percentage increase, Smiths Detection achieved "strong double-digit" growth, and Flex-Tek Aerospace experienced steady growth alongside a robust recovery. Smiths Interconnect emerged as the standout performer, with its Semiconductor-test segment showing "significant improvement."

In light of these results, Smiths updated its guidance, projecting organic sales growth of 5-7%, up from the earlier forecast of 4-6%. Additionally, operating profit margins are now expected to improve by 40-60 basis points, reflecting greater precision and slight enhancement over prior estimates.

Domino's Pizza Group (+13%) reaffirmed its full-year earnings guidance following an increase in orders and system sales during the third quarter. The UK and Ireland master franchisee reported a 3% rise in total system sales to £3758 million compared to the same period last year, with quarterly like-for-like system sales returning to growth after a decline in the first half of the year.

Total orders increased by 3.5% during the quarter, fuelled by a 6.6% rise in delivery orders. This positive momentum has extended into the fourth quarter, with total orders up 5.8% in the first five weeks. The company continues to forecast full-year underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) in the range of £142.4 million to £144.7 million.

Turning to the detractors, Synthomer (-7.2%) shares slid gradually lower after a third-quarter trading update published on the last day of October confirmed the company is trading “broadly” in line with expectations for the full year amid a backdrop which continues to present demand challenges. Synthomer continues to focus on its self-help initiatives, including a strategic re-focusing on higher margin speciality chemicals, cost savings and working capital discipline.

WH Smith (-6.8%) shares declined despite the retailer delivering final results that aligned with expectations, increasing its dividend, and reporting a strong start to the new financial year. The company, which operates across high streets, airports, and stations, announced plans for a "year of investment" in its Funky Pigeon online greeting cards platform, with a commitment to higher spending on both the platform and brand compared to 2024.

WH Smith also unveiled plans to open 90 new stores in the current year, with 60 of these located in North America.

Pharmaceutical group GSK (-3.1%) fell victim to renewed negative investor sentiment following US President-Elect Donald Trump’s decision to appoint Robert F Kennedy Jnr to be the country’s next health secretary. With a history of vaccine scepticism and questioning of vaccine safety, the nomination was seen as a blow to GSK, whose Vaccines division represents around a third of the business.

In terms of trade activity, our position in Hargreaves Lansdown was exited following the completion of its takeover by a private equity consortium. With the shares trading close to the acquisition terms and completion not expected to occur until next year, the fund managers opted to redeploy the capital elsewhere. 

The Fund initiated a new FTSE100 position in Convatec during the month. Convatec is a provider of medical products designed to help patients manage chronic conditions, including advanced wound care dressings, ostomy care devices, continence care products and infusion sets for diabetic insulin pumps. The company exhibits strong barriers to competition in the form of its intellectual property, with high levels of patents, R&D innovation and category know-how. It also enjoys market leadership positions in its core categories and has a significant strength in distribution, providing products and services in almost 100 countries around the world from nine manufacturing locations. Meanwhile, although revenues are not technically contracted recurring, there is a high degree of repeatability of sales (>90%) due to the chronic nature of the conditions treated. 

Positive contributors included:

Sage Group (+35%), Indivior (+29%), TP ICAP (+17%), Smiths Group (+16%), Domino’s Pizza Group (+13%)

Negative contributors included:

Synthomer (-7.2%), WH Smith (-6.8%), Brooks MacDonald (-3.6%), GSK (-3.1%), YouGov (-3.0%)

Discrete years' performance** (%) to previous quarter-end:

*Source: Financial Express, as at 30.11.24, total return (net of fees and income reinvested), bid-to-bid, institutional class. **Source: Financial Express, as at 30.09.24, total return (net of fees and income reinvested), bid-to-bid, primary class.

^† Julian Fosh is on a leave of absence. The Economic Advantage funds continue to be managed by the other members of the team in Julian’s absence.

KEY RISKS

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

The Fund may encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings. The Fund may invest in companies listed on the Alternative Investment Market (AIM) which is primarily for emerging or smaller companies. The rules are less demanding than those of the official List of the London Stock Exchange and therefore companies listed on AIM may carry a greater risk than a company with a full listing. Outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash. Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails.

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